Good day and thank you for standing by. Welcome to Cineplex's first quarter 2022 earnings call. There will be an opportunity to ask questions after the speaker's prepared remarks, which you can do so by pressing star one on your telephone keypad. I would now like to hand the conference over to your first speaker today, Mahsa Rejali, Executive Director, Corporate Development and Investor Relations. Thank you. Please go ahead.
Thank you. Good morning and welcome. With me today is Ellis Jacob, our President and Chief Executive Officer, and Gord Nelson, our Chief Financial Officer. Before I turn the call over to Ellis, let me remind you that certain statements being made are forward-looking and subject to various risks and uncertainties. Such forward-looking statements are based on management's beliefs and assumptions regarding information currently available.
Actual results could differ materially from those expressed in the forward-looking statements. Factors that could cause results to vary include, among other things, the negative impact of the COVID-19 pandemic, adverse factors generally encountered in the film exhibition industry, risks associated with other national and world events, discovery of undisclosed material liabilities and general economic conditions. Following today's remarks, we will close the call with our customary question and answer period. I will now turn the call over to Ellis Jacob.
Thank you, Mahsa. Good morning and welcome to our Q1 2022 conference call. We are glad you could join us today. As I address our key results, I need to say that the theatrical exhibition industry and Cineplex continue to make significant strides in recovering from the effects of the pandemic. This resulted in a first quarter year-over-year revenue growth of 452% and a reduction in net loss of 53% for our company.
Leading film performances during the quarter included the highly anticipated title, The Batman, which has grossed over $765 million at the global box office, and the continued success of Spider-Man: No Way Home. The film delivered record-breaking results with $1.9 billion in global box office to date.
Despite a December release and closures in January, our guests waited to watch it on the big screen when we resumed operations, with the film contributing 20.4% to our first quarter box office. We were also pleased with the performance of alternative content in the quarter, and our company has been a pioneer in bringing such content to the big screen, particularly with international titles.
For instance, the Bollywood title, Aaja Mexico Challiye, was very well-received globally and generated nearly $100 million, with Cineplex leading the charge in North America and contributing 65% of the domestic box office. Next came the K-pop sensation BTS, which returned to cinema for a global one-day event. Permission to Dance, becoming the single biggest feature of its kind in the history of event cinema, achieved with only two showtimes.
Jujutsu Kaisen, an anime film released in mid-March, which rose to the number two position at the North American box office after The Batman on its opening weekend and generated more than $154 million worldwide. Looking to the remainder of 2022, the film slate is expected to be even stronger, with titles so far in Q2 including Sonic the Hedgehog 2, Fantastic Beasts: The Secrets of Dumbledore, and Doctor Strange in the Multiverse of Madness.
This film exceeded industry expectations and debuted with an incredible opening weekend gross of $185 million at the domestic level, $100 million higher than the first Doctor Strange film. We are proud to say this represents Cineplex's sixth-largest film opening of all time. We are excited by these results and the industry's momentum as we move forward.
This enthusiasm was shared among our peers, studio partners and other stakeholders at our industry's annual trade convention, CinemaCon, which took place in Las Vegas this April. CinemaCon brings together studios and exhibitors from around the world and provides a forum for our studio partners to showcase their upcoming film slate.
During this year's convention, we had the opportunity to view highly compelling content that is sure to delight diverse audiences over the coming months. It was clear to us that our studio partners are committed to an exclusive theatrical release window and viewed as critical to maximizing revenue streams for a film, including improving performance on streaming platforms. Furthermore, we heard from actors and directors that they are making films for the big screen and the magic of moviegoing.
Overall, the feedback received at CinemaCon was overwhelmingly positive, and there was strong consensus that the theatrical exhibition industry is back and poised for a strong recovery. While government-mandated restrictions and closures due to the Omicron variant continued to pose significant challenges in Q1 for our company, there's no question that we are on a path to recovery. As we announced on April 18, we are now operating our entire circuit across the country. In the past two years, whenever operating restrictions were lifted, our guests and customers quickly returned to our theaters and entertainment venues.
In January, the vast majority of our venues were either closed or operating under restrictions, and as expected, this was reflected in our January results, with box office revenue reaching only 22% of 2019 levels. Starting early February, all our venues were open, but with significant operating restrictions in most provinces, which resulted in box office revenues that still managed to reach 60% of 2019 levels. In March, operating restrictions relaxed further and enabled an increase in box office revenue to 70% of 2019 levels. As I mentioned earlier in my remarks, in April, all our venues began operating at full capacity with no restrictions, including mask mandates, vaccine passports, with the exception of Quebec, which will be free of mask mandates on Sunday.
This momentum is very promising and provides confidence in the future and our quick recovery. Despite the challenges noted earlier, we still delivered strong revenue growth during the first quarter compared to the prior year period, welcoming 6.7 million guests to our theaters. We achieved a first quarter record VPP of CAD 12, driven by premium offerings and an all-time quarterly record CPP of CAD 8.82, which is an increase of 44.1% when compared to the prior year.
CPP growth was driven by product mix, modest price increases, additional VIP Cinemas, and higher concession spend by our guests. However, due to the material negative impact of Omicron and the mandated operating restrictions during Q1, we reported a net loss of CAD 42.2 million during the quarter compared to CAD 89.7 million in Q1 2021.
Our adjusted EBITDA loss improved to CAD 5.7 million from CAD 62.1 million last year. Looking at our segmented results, although the adjusted EBITDA contribution from our film and entertainment business was marginally negative at CAD 6.3 million, our media and our amusement and leisure delivered positive adjusted EBITDA for the quarter.
Furthermore, even though our LBE business was impacted by closures and operating restrictions, it was the biggest contributor of EBITDA for the quarter due in part to the huge success during the March school break. These results highlight the strength of our diversification strategy and the significant opportunity they represent for our future growth. While our recovery is ongoing, we can now say for the first time in over two years that our entire circuit of venues is open without restrictions as we begin to emerge from the pandemic and transition towards normalcy.
We are particularly encouraged by results that surpass pre-pandemic box office numbers, such as last weekend's opening of Doctor Strange in the Multiverse of Madness, where we achieved 129% of the comparable box office period in 2019. This over-achievement also occurred during the opening weekend of Fantastic Beasts: The Secrets of Dumbledore, where we achieved 107% of 2019 box office levels. Our audience demographics are also beginning to return to the pre-pandemic profile. As we see the release of a more diverse film slate, we expect these demographics to increasingly resemble the mix of guests we welcomed before the pandemic began. Two great examples are the release of Sonic the Hedgehog 2 and The Bad Guys, which brought more families to our theaters.
We are also incredibly excited by the highly anticipated film, Top Gun: Maverick, which we expect will have great appeal for a wide spectrum of adult guests. As we move forward in 2022 and gain momentum in all of our businesses, we will continue to effectively navigate the effects of the pandemic and drive long-term value creation for our shareholders. We expect to achieve growth in our business by a focused implementation of our strategic priorities, which include reigniting theatrical exhibition, growing our diversified businesses, leveraging our ecosystem, and continue to apply financial discipline and operational excellence. Our first priority is to reignite theatrical exhibition. This effort includes, first and foremost, our objective of driving attendance and increasing moviegoing frequency. To achieve this, we will be focused on growing our entertainment subscription program, CineClub.
Since its launch in the third quarter of 2021, the program has received a positive response from our guests, and we believe CineClub's value proposition will continue to encourage additional visits and engagements across the Cineplex ecosystem. Another way we will look to drive attendance and frequency is through our long-standing Scene loyalty program, now in its 15th year. Scotiabank card members were recently added to Scene, which is now Scene+, providing future opportunities for greater connections with more Canadians. The expanded base will enable our team to target and engage with a wider range of members, both growing our customer base and increasing moviegoing frequency. We continue to explore alternative content offerings to attract new audiences, including the expansion of our distribution business, Cineplex Pictures, for select feature films in Canada.
This is in addition to our successful efforts to increase and diversify content with international titles, non-traditional studios, and other alternative programming through Cineplex Events. Non-traditional studios recognize the importance of a theatrical release as it increases awareness and the value of their content prior to being released on their streaming platforms. We are continuing discussions with non-traditional suppliers to expand the content of our screens. Further to these efforts, for the month of March, seven out of our top 20 titles were driven by alternative content, which included four international titles, two non-traditional titles, and Cineplex Pictures release of the feature film Ella and the Little Sorcerer. Some of our alternative titles even outperform Hollywood films in select theaters, and this underscores the importance of this content. Finally, we will drive guests to our theaters through focused and measured marketing initiatives.
This ranges from high-level awareness campaigns to remind all Canadians of the magical escape of returning to the movie theater right down to one-to-one offers which target unique cohorts of guests with titles or promotions designed specifically to bring them back to our theaters. These one-to-one initiatives are a growing focus area for us, and they allow us to profitably leverage our significant customer data to enlist our marketing capabilities and digital and media assets to drive and measure consumer demand and conversion. Our second objective in reigniting theatrical exhibition is to increase per patron spend. We will accomplish this through numerous initiatives, such as expanding and enhancing our concession offerings, optimizing our pricing strategies, and again, leveraging customer data and one-to-one offers to drive purchase and upsell. Last but certainly not least, we will reignite moviegoing by enhancing the guest experience.
For us, this entails continuing to invest in our digital products to simplify and improve transactional processes. We will also continue to expand our premium offerings, including UltraAVX, IMAX, VIP Cinemas, D-BOX, Recliners, 3D, 4DX, and ScreenX to make sure our guest experience is truly unique and memorable, one that can't be replicated at home. While exhibition remains our core business, we remain focused on our diversification strategy and will persist in our efforts to scale and drive growth in our non-exhibition businesses, which is our next strategic priority. Within our amusement and leisure segment, we are excited about the strong numbers we are seeing from our location-based entertainment and P1AG businesses. In our LBE business, we currently have 10 Rec Rooms and three Playdiums across the country, with almost half of the new locations opening within the last two-plus years.
Given the number of locations, we are starting to build scale in this business, and it's becoming a more significant part of our total revenue. Going forward, we will look to drive results in this segment through organic growth from existing locations, the addition of new locations through the opportunistic and prudent rollout of the LBE concept, and by enhancing operational efficiencies to increase margins. The recovery of our P1AG business has been strong. Two-thirds of its business is generated in the United States, which was less impacted by operating restrictions. Going forward, we will continue to grow the business both within our existing customer base and by attracting new customers. Within the media segments of our business, both Cineplex Media and Cineplex Digital Media continue to show encouraging signs of recovery.
Cineplex Media is showing strong growth as client confidence returns and companies build out their advertising budgets for the remainder of 2022. Typically, there's a delay between the return of our audiences and the return of spending from our media advertisers. Our team at Cineplex Digital Media continues to be busy with the rollout of new products and services which optimize digital signage, expand offering for our clients, and unlock value from data and experience design services. Going forward, we believe we can expand the business through high-margin opportunities from these initiatives, drive growth within our existing client base, and add new clients. A great example of this is the recent addition of Primaris Mall to our digital out-of-home mall network. Our third strategic priority is to leverage the Cineplex ecosystem to unlock the value of data across all our business lines.
Collectively, we have millions of touch points that translate into meaningful data collection opportunities. This has great potential for value creation and can help us improve our decision-making capabilities, improve our guest insights, enhance our one-to-one marketing efforts, and evolve our media value proposition. Another way we will look to unlock data is to leverage our Scene+ loyalty program, which I spoke about earlier. In addition to the benefits of leveraging data across the ecosystem, we constantly strive to drive both revenue and cost synergies across our business lines. Our fourth and final strategic priority is focusing on optimizing our operations, assets, and further solidifying our financial position. For us, this entails three objectives, the first of which is using automation and artificial intelligence to streamline processes and improve workforce management.
Secondly, we want to optimize the use of our retail square footage, including the conversion of excess space within some of our theaters to provide additional entertainment experiences. There's also opportunity to be unlocked by potentially exiting select locations which are underperforming. Thirdly, we will apply financial discipline as we've always done to manage capital allocation across our businesses and work towards achieving our target leverage ratio of 2.5x-3x. Given everything that I've highlighted today, Cineplex has an exciting future, and we are optimistic about our position in exhibition and all other businesses we operate. Before I pass things to Gord, I want to provide a brief update on the ongoing litigation with Cineworld. As many of you heard, in December 2021, the Ontario Superior Court of Justice issued a judgment for CAD 1.24 billion in favor of Cineplex.
While Cineworld has filed its appeal, we remain confident in the court's decision and will defend all aspects of the judgment. The oral hearing at the Court of Appeal for Ontario has been set for October 12th and 13th of this year. We recognize the significance of this matter and have engaged world-class advisors to assist in the optimization of the value of the judgment. Looking ahead, it is clear the global film industry is poised for a big return as we emerge from the pandemic and content supply remains strong. As you've heard me say, theatrical exhibition has and will always be the engine that drives the train. This is consistent with the key message that was echoed during CinemaCon about the importance of the theatrical release and the cinematic experience to promote and elevate content to its utmost potential.
With that said, we are particularly encouraged by the remainder of this year's film slate, which is very promising, as we saw during the premieres of these films at CinemaCon. In addition to Doctor Strange, for the remainder of Q2 2022, the following titles are slated for release. The highly anticipated Top Gun: Maverick, which basically is opening on May 22. I had the pleasure of seeing this film and can't recommend it enough. Jurassic World Dominion, Lightyear, Elvis, and The Black Phone. For the remainder of the year, we have Minions: The Rise of Gru, Thor: Love and Thunder, Nope, Bullet Train, DC League of Super-Pets, Don't Worry Darling, Halloween Ends, Black Panther: Wakanda Forever, Shazam! Fury of the Gods, and likely the most anticipated film of the year, Avatar: The Way of Water.
I was fortunate to see some breathtaking 3D footage of this film, and I can't wait for its release. When I look at these titles, I am delighted by the variety among genres, including mid to top-tier films that will surely captivate moviegoers in our theaters for the remainder of the year. In closing, we are excited about the future.
Our theaters and entertainment venues are open across the country without operating restrictions. We are poised to capitalize on the impressive film slate for the remainder of the year and the promising momentum we are witnessing in our other businesses. Our balance sheet is solid, and we are well positioned for a strong recovery for the remainder of 2022 and beyond as we emerge from the pandemic.
Finally, we will continue to advance growth initiatives and drive long-term value for our shareholders to maintain Cineplex's position as an industry leader. With that, I will turn things over to Gord.
Thanks, Ellis. I am pleased to present a condensed summary of the first quarter results for Cineplex Inc. For further reference, our financial statements and MD&A have been filed on SEDAR and are also available on our investor relations website at cineplex.com. Our MD&A and earnings press release include a fulsome narrative on the operational results, so I will focus on highlighting and quantifying some of the key operating results and provide commentary on cost control, liquidity, and outlook.
As Ellis mentioned, our Q1 operating results were materially impacted by provincially mandated closures, capacity restrictions, and for the first time, restrictions on concession sales in certain provinces. Despite these closures and restrictions, our performance materially improved from the prior year quarter. Total revenues increased to CAD 228.7 million from CAD 41.4 million in the prior year.
Net loss improved to CAD 42.2 million from CAD 89.7 million in the prior year, and the adjusted EBITDA loss improved to CAD 5.7 million from CAD 62.1 million in 2021. In our film exhibition and content segment, attendance increased to 6.6 million in the current quarter as compared to 6.4 million in the prior year. We reported a first quarter record VPP of CAD 12 and an all-time record quarterly CCC of CAD 8.82, despite the restrictions on theater food sales in certain provinces in the early part of the quarter. These restrictions and closures resulted in a segment-adjusted EBITDA loss of CAD 6.3 million, our only segment reporting a loss.
Our media business was also materially impacted by the operating restrictions and closures, not only by the specific restrictions implemented in Q1, but also by the uncertainty that restrictions throughout the year created in our clients' strategies as they look to commit to cinema and our digital place-based networks. On a positive note, we did see clients coming back once we started to reopen and reported first quarter media revenue of CAD 15.5 million as compared to CAD 9.1 million in the prior year. The increase was primarily due to cinema media revenue, which increased CAD 6.4 million in Q1 2022. Our overall media segment adjusted EBITDA increased to CAD 5.3 million from CAD 0.8 million in the prior year.
P1AG business typically generates approximately two-thirds of its revenue from the US and as such is less impacted than our other businesses by operating restrictions in Canada. In spite of the impact of the restrictions in Canada, it had another strong quarter with revenues increasing to CAD 34.9 million from CAD 12.6 million in the prior year, and EBITDA increasing to CAD 5 million from a loss of CAD 3 million in the prior year. Although our LBE business was also impacted by the closures and operating restrictions, with the strong success during the March school breaks, we were pleased to report Q1 adjusted store-level EBITDA of CAD 7.1 million, up from a loss of CAD 2.4 million in the prior year, and an adjusted store-level EBITDA margin of 35.4%.
G&A expenses were up 13.9% to CAD 16.1 million from CAD 14.1 million in the prior year, primarily due to a decrease in wage subsidies, increased restructuring expenses, and timing related to certain expenditures. These items are described in more detail in our MD&A. With the operating restrictions, we continued to be focused on cost control, and I wanted to provide some comments on our largest fixed and semi-fixed costs and the impacts of subsidies and abatements during the quarter. For the first quarter, we reported government subsidies of approximately CAD 29.1 million as compared to CAD 11.3 million in the fourth quarter of 2021 and CAD 28.2 million in the first quarter of 2021.
CAD 29.1 million reported in Q1 2022 includes approximately CAD 20.1 million in wage subsidies and approximately CAD 9 million under the Federal Rent Subsidy Program and Provincial Property Tax and Utility Subsidies. Our subsidy program receipts did increase in the first quarter as compared to the fourth quarter of 2021 as provincial and federal governments announced enhanced subsidy programs with the Omicron restrictions. In addition to the government subsidies, we continue to receive abatements from our landlords, albeit at declining amounts as time has passed and our locations reopen. For the first quarter, we received the benefit of abatements totaling CAD 0.8 million as compared to abatements of CAD 12.3 million in the first quarter of 2021.
For the first quarter of 2022, we reported net CapEx of CAD 9 million as compared to CAD 5.1 million in the prior year. For 2022 and beyond, we will continue to be prudent with our growth initiatives and will seek out opportunities within the disrupted retail landscape. Given the impacts of the pandemic and the related restrictions during the first quarter, our guidance for net CapEx 2022 will be CAD 70 million-CAD 75 million. As a result of the closures and operating restrictions during the first quarter, we reported a first quarter average monthly net cash burn of CAD 9 million as compared to an average monthly net cash burn of CAD 26.2 million in the prior year. Before discussing our liquidity position, I wanted to discuss the following five items.
First, I want to talk about an accounting impact of the reorganization of SCENE into Scene+, which took place in December 2021. Prior to this reorganization, SCENE points issued on box office concession and other revenue transactions were treated as discounts to the related revenue. As an example, a reduction of box office concession or other revenues. Post this reorganization, Scene+ points issued on these transactions will be treated as marketing expenses.
Although the net impact is nil, this will impact the year-over-year comparisons of the impacted items. We have identified and quantified most of these impacts in our MD&A disclosures. As an example, this change has resulted in an increase in BPP and CPP by approximately CAD 0.21 and CAD 0.22 respectively, and an increase in marketing expenses by approximately CAD 3 million with an overall net nil impact to EBITDA.
Second, with respect to the Cineworld litigation, we were awarded damages of CAD 1.24 billion and CAD 5.5 million for transaction costs exclusive of prejudgment interest. Cineworld has filed a notice of appeal, and oral hearings are scheduled for October 12th and thirteenth of this year. Due to uncertainties in timing, outcome of appeal, and the ability to receive the full amount. No amounts have been accrued as a receivable in our financial statements at this time. As Ellis mentioned, we have engaged external advisors to assist in optimizing the value of this claim. Third, I want to remind you of the benefit of the tax asset that was derecognized during 2020 as a result of uncertainties related to the pandemic.
As described in note eight of our year-end financial statements, we currently have non-capital losses totaling CAD 314.6 million to utilize against future periods. We continue to evaluate the recoverability of these deferred tax assets and will recognize such asset when and if appropriate. Fourth, in addition to the deferred tax assets as our businesses continue to recover and return to profitability, the reversal of a portion of previously recognized impairments may be appropriate. Finally, in our subsequent event note, we discussed the planned end of the limited life financing entity Canadian Digital Cinema Partnership, or CDCP. CDCP expects to distribute its remaining assets to its partners in 2022. As a reminder, Cineplex holds a 78.2% undivided interest in CDCP, with Cineplex carrying value being approximately CAD 5.7 million.
Historically, we have excluded the impacts of CDCP in our calculation of adjusted EBITDA, as it was a limited life financing entity. I would now like to focus on our liquidity position. For Q1 2022, we reported net borrowings of CAD 43 million under our credit facilities, which was primarily a result of the CAD 27 million cash burn during the quarter and CAD 15.1 million in working capital outflows. This is in line with historical trends as we typically have working capital outflows in Q1. As a reminder, in December, we announced an amendment in our credit facilities, which resulted in the suspension of covenant testing until the second quarter of 2022. While the covenant testing is suspended, we are required to maintain a minimum liquidity level of CAD 100 million.
As at March 31, 2022, we had approximately CAD 2,229 million in availability or liquidity under our credit facilities. As we continue to reopen and ramp up, we will continue to focus on cost controls and liquidity while driving revenues. As Ellis mentioned, coming out of CinemaCon, there was a lot for the exhibition industry to be excited about. We have great product coming, and we have a renewed focus from studios on the importance of theatrical exhibition. We continue to focus on the return of our businesses, while exploring opportunities for value creation. That concludes our remarks for this morning, and we'd now like to turn the call over to the operator for questions.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you change your mind, you can press star two. When preparing to ask your question, please ensure your device is unmuted locally. The first question comes from Adam Shine at National Bank Financial. Adam, please go ahead.
Thanks a lot. Good morning. Ellis, thanks for that detailed rundown on the objectives, but maybe just two or three questions for you guys, one at a time. Ellis, just in terms of the momentum at the box office, you know, you did touch on those two weekend performances. Do you have any data that you can share with us overall for April in terms of the box office versus 2019?
Yes. I mean, April was a hard comparator to 2019 because in April of 2019, we had Avengers: Endgame.
Yeah.
which was the second-highest grossing film of all time. I got to be honest with you, this week, we did over 125% of revenue from 2019 when we opened Doctor Strange. You just, you know, can't take a number of weeks because it all depends on what was opening in that period.
Of course.
compared to what opened in 2022. I'm pretty positive as you know, Doctor Strange really over-indexed above what the expectations were. We did quite-
Yeah.
Well with the movie right across the circuit.
Right. I mean, notwithstanding the tough comp with the Avengers that you properly noted, obviously the momentum simply is continuing, you know, following some of the buildup in Q1. Gord, you touched on CDCP. The wind down doesn't seem to be much of a big event per se. Is there any incremental or modest revenue that comes to you maybe onto the cash flow statement? Does it look like it might be more than a couple, maybe CAD 2 million or CAD 3 million, or am I missing something?
Yeah. No. I gave you our net investment position of about CAD 5.7 million. We've typically had quarterly distributions from CDCP anyway. Yeah, there will be. On the wind up, you know, the net cash position will be distributed, of which we'll receive 78.2%. Yeah, you're correct. It's not gonna be significant.
Okay. Ellis, you know, you touched on a lot of the alternative programming initiatives that you know, you have continued to expand upon. Sort of one area that, correct me if I'm wrong, that I've never seen pursued is, you know, the opportunity maybe to sort of air
A series like, for example, Game of Thrones, you know, something with huge production value, but something that can drive, you know, weekly frequency, particularly as the show gets driven out. Just in the context of, you know, more experimentation by these streamers and even a number of them talking about, you know, ad models and, you know, other experimentation. Is that something that we might be able to see from you guys on the horizon?
No. It's interesting. With Game of Thrones, we actually did do that, when it first came out, and we are definitely having discussions with, you know, some of the streamers about, doing that as part of our event cinema. So yes, it will be, you know, something that we will continue to pursue.
Okay. Thanks for that. I'll leave it there.
Thank you.
The next question comes from Derek Lessard at TD Securities. Derek, please go ahead.
Yeah. Thanks. Good morning, everyone. Congrats, Ellis, on your NATO Marquee Award. I just maybe wanted to.
Thank you.
Yeah, no problem. I just want to maybe follow up on Adam's question regarding the box office momentum. I think for some of the names or movies where you've had, you know, advanced ticket sales like Maverick, are you able to maybe give us a sense of the level of interest or anticipation?
Yes. We are seeing, for example, in the case of Doctor Strange, we saw significant presale requests for the product, and they were coming up to a level of where they were in the top five to 10 best presales ever. We are seeing really, really strong demand from our guests. You know, with all of our seats now reserved, it's easy to basically book a seat online, and our guests are doing that in a big way. You know, last weekend, we saw massive sales as we were going through with the Doctor Strange.
Okay. That's helpful. Maybe, how do you think about your current cost structure in this inflationary environment? You know, maybe your ability to offset some of those costs.
Yeah, Derek, it's Gord. So you know, obviously, you know, there's concerns about being in an inflationary period, which we've become very focused on costs. You know, we turn to automation, we turn to digital products as ways of trying to make our operations more efficient as Ellis sort of described in one of our strategic thrusts. To the second half of your question is, you know, the extent that we can't use efficiencies or other tools to offset some of those costs is, you know, we do. We believe, as everyone else out there has the same dilemmas, is we could potentially turn to price if required.
Okay. That's it for me. Thank you.
Thank you.
The next question comes from Drew McReynolds at RBC. Drew, please go ahead.
Thanks very much. Good morning, just would echo congrats, Ellis, on recognition that you received. Couple for me.
Thank you.
I think, just maybe for you, Gord, just back to operating costs. You know, as you look into Q2, in terms of just any lingering subsidies and abatements or any of that, just how should that kind of off ramp here? Presumably, it should be fully out. Second question, just on the CPP, BPP sustainability, even when you exclude the SCENE accounting impacts. I mean, you're certainly on the off ramp here coming up at a very good level. Just maybe talk to the puts and takes on the sustainability of that. Thank you.
Sure. I'll take the first question just sort of on subsidies then. I mean, look, the good news is we're back and business is building, and as that happens our eligibility for subsidies then disappears. Look, we had a significant level in Q1, and that was primarily because the federal government and the provincial governments with the Omicron restrictions and the shutdowns, you know, they provided, as I said in my note, my comments, sort of an enhanced version of the subsidies to help impacted businesses through that period.
As we look to Q2, and, you know, we've given you some of the stats about the week-over-week performances on certain films. I would suggest that, you know, our availability for subsidies will be very small to negligible in the second quarter.
Yes. To your question on the BPP, where we are seeing the strongest growth is in our premium offerings, and that is really how the films, when you look at the presales, they're all very heavily weighted to that, and that's really driving the BPP upwards. 'Cause we've taken the position that, you know, give our guests a premium experience and value, and that's, you know, helping us, and our guests are really happy to pay that because it cannot be replicated at home. I think that will continue, but as there'll be more movies, we'll have to see how we get through with the increased BPP. But we feel comfortable about it.
Okay. Ellis, just in addition to that commentary, do you feel there's been a change in terms of that overall demand on the premium side post-COVID? Is this a function of you know, people looking at kind of what they wanna do outside of the home a little differently? Or do you think it's just kind of naturally running its course as you would have expected?
I think it's all about having the best experience when you're out, and that's really what the guests are looking for. That, you know, is not applicable to every movie. It varies depending on the movies. Once 3D starts to come back, as you know, we had one of the highest percentages of 3Ds in the world. Avatar is a movie that's coming back in 3D, and we expect it to be huge for us as we move forward. It's really product-driven, but it's also the experience that our guests really enjoy and want to be part of. We have done, you know, a lot of work on making sure we are providing them with those experiences.
Super. Just maybe on the CPP, and then that's it for me. Thank you.
Thank you.
If you would like to ask a question, please press star one on your telephone keypad now. Our next question comes from Tim Casey at BMO. Tim, please go ahead.
Yeah, thanks. Just one for me. Ellis, or pardon me, Gord, back to the inflation question. I know in the past you had protected yourself from some commodity with forward buying on corn. I'm just wondering, you know, where are you seeing the pressures? Is it mostly in wage or I'm just trying to think of what other kind of variable costs that you would be exposed there. Maybe you could just add a little bit of color on that. That would be great. Thanks.
We continue to be opportunistic and make sure that we cover our positions in commodities to the extent that we can, which is primarily corn, as we're one of the biggest popcorn buyers in Canada. It's primarily wages and then in the short-term right now with supply chain disruptions, our procurement team is doing an amazing job of sourcing alternative supplies for whether it's things like paper products and other things that are having kind of production schedules today. Those we expect are more short-term in terms of just the supply chain disruption right now. As we look forward, I'd say when you look at our cost structure, our largest costs are variable.
You know, our film rent is variable. Our rent costs are contractual and fixed. It's the labor. You know, the labor is our biggest cost. As we get down into our other cost categories, you know, we obviously, as everything else is there, we're gonna see cost increases. A number of our largest cost categories are either somewhat fixed or variable.
Thanks for that.
Thank you.
At this time, there are no additional questions. I would like to turn it back over to Ellis Jacob for closing remarks.
Thank you again for joining the call this morning. As you heard today, our company is very well-positioned, and we have a lot to look forward to. Above all, our team is happy to have our guests back in our venues so we can get back to doing what we do best, entertaining Canadians. We look forward to connecting with you again on Wednesday, May 25th for our annual general meeting, which is being held in person at Scotiabank Theatre, Toronto or virtually via webcast. Details have been circulated and can also be accessed in our management information circular, which is available on the investor relations section of our corporate website. Until then, please take care, be well, and enjoy a movie at your local Cineplex. Thank you very much. Have a great weekend. Bye.
Thank you. This concludes Cineplex Inc.'s fourth quarter 2022 earnings call. Thank you for joining. You may now disconnect your lines.